Valid Confidence Intervals and Inference in the Presence of Weak Instruments

Charles R. Nelson, Richard Startz () and Eric Zivot ()
Additional contact information
Charles R. Nelson: The University of Washington

Econometrics from EconWPA

Abstract: We investigate confidence intervals and inference for the instrumental variables model with weak instruments. Wald-based confidence intervals perform poorly in that the probability they reject the null is far greater than their nominal size. In the worst case, Wald-based confidence intervals always exclude the true paremeter value. Confidence intervals based on the LM, LR, and Anderson-Rubin statistics perform far better than the Wald. The Anderson-Rubin statistic always has the correct size, but LM and LR statistics have somewhat greater power. Performance of the LM and LR statistics is improved by a degrees-of- freedom correction in the overidentified ccase. We show that the practice of "pre-testing" by looking at the significance of the first - stage regression leads to extremely poor results when the instruments are very weak.

Keywords: confidence intervals; instrumental variables; pre-testing; weak instruments (search for similar items in EconPapers)
JEL-codes: C12 C30 (search for similar items in EconPapers)
Date: 1996-12-02
Note: Type of Document - Adobe .pdf file; prepared on Mac; pages: 49; figures: 8, included in paper
View list of references View citations in EconPapers

Downloads: (external link)
http://129.3.20.41/eps/em/papers/9612/9612002.pdf (application/pdf)

Related works:
Working Paper: Valid Confidence Intervals and Inference in the Presence of Weak Instruments (1996)
Working Paper: Valid Confidence Intervals and Inference in the Presence of Weak Instruments (1997)
Working Paper: Valid Confidence Intervals and Inference in the Presence of Weak Instruments (1997)
Working Paper: Valid Confidence Intervals and Inference in the Presence of Weak Instruments (1996)
Journal Article: Valid Confidence Intervals and Inference in the Presence of Weak Instruments (1998)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpem:9612002

Access Statistics for this paper

More papers in Econometrics from EconWPA
Series data maintained by EconWPA ().